Q: I run a bootstrapped software company and our biggest customer (60% of our revenue) has offered on several occasions to invest in the company. I worry allowing customers to become shareholders could complicate things. Should we consider this?

Taking an investment from your largest customer certainly will complicate things. So you should be worried. But there are positives as well.


  • If the ownership stake is > 5%, could scare away VCs. Less than this though, no one will care too much.
  • If the ownership stake is > 10% or so, could scare away acquirers.They may be worried you are an affiliate of the BigCo and not a practical acquisition target. A > 10% shareholder can in many cases, one way or another, block an acquisition.
  • BigCo’s competitors may pick another vendor. But not always. Sometimes they’ll see it as a signal of the winner in the space.
  • Rarely keep investing after the initial investment. Most corporate investors are “one and done”, vs. VCs which often can invest multiple times.
  • Sometimes never end up helping at all. A small investment from a BigCo is really immaterial, at all.  Usually, the amount of help you get is smaller than most founders expect going into it.
  • Sometimes put onerous terms on the deal. E.g., rights to buy you, etc.  Established corporate VC programs have moved away from this, e.g. Salesforce, Shopify, etc.  But Big Customers may explicitly want these restrictions as a reason to invest.  Be very wary here, and default to No if you hear of any material restrictions.  Or at least, default to “Could Be Great, But Not Now”.
  • Your BigCo champion will probably leave at some point. Whoever drives the investment may well not even work at that BigCo in 12, 18, 24+ months. You’ll be stuck with an orphaned investment on the cap table.

Yes, that’s a lot of Cons. But there are also Pros.


  • Sometimes, a BigCo will help far more than totally makes sense because they are an “investor”. It may not make economic sense, but some BigCo’s help the companies they invest in far more than those they don’t. Do your diligence here.
  • Can anoint you a winner in the space, before there is one. You can get a lot of bragging rights from a BigCo investing in you. Especially vis-a-vis a direct competition. “Salesforce picked us” or “Google picked us” can go a long way, at least before you have an established brand yourself.
  • Often are less price and ownership sensitive. At the end of the day, a BigCo investment in a start-up isn’t really about huge returns. But a VC investment is. So they are often OK buying a smaller stake than a VC would, and many times are less price sensitive.

Net net, if the ownership stake is <5%, there are no onerous terms or extra rights, and the investment can help you materially (i.e., you need the money or could really benefit from it) and it’s from a market leader … I generally say take it.

A bit more here: Corporate VC Investments: Limited, But Real, Pros. And Cons. | SaaStr

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